Credit Scores & Auto Financing
Most people start paying special attention to their credit score before major purchases like a home or car. Whether you’re buying or leasing a vehicle, this three-digit number plays a roll in loan and lease approvals and can also determine your interest rate or money factor!
So what is a credit score and how will it impact my car shopping?
850 - 800
749 - 700
699 - 650
649 - 600
599 - 300
TransUnion, Experian, and Equifax are the three main credit bureaus. The credit scoring models used by most auto lending institutions are FICO® Auto Score and Vantage. The rest of this page will focus on FICO® since it is the standard for scoring at Proctor Acura and most lenders working with the auto industy.
FICO® is an acronym for Fair Isaac Corporation, the company that created this credit scoring algorithm.
The FICO credit scoring model uses a variety of factors about the buyer to estimate their perceived creditworthiness-represented by a three digit score between 300 (lowest credit score) to 850 (highest credit score).
How does FICO’s model determine my credit score?
While the exact algorithm used by FICO to calculate credit scores is a secret, we do know that there are certain factors that carry weight when determining a potential buyer’s credit score.
On any existing loans or credit cards, have you managed payments in a timely and responsible manner?
How many types of loans do you have and how have they been paid off? (Ex: home mortgage, car loan, student loans, and credit card)
Credit scores favor those who have been building good credit for longer. While it is great to be totally debt-free, it also means less credit history.
This is essentially how much you owe compared to how much you’re allowed to borrow. Are your cards maxed out, or far from their limit?
Recent lender credit checks are an indicator of how much you are seeking to borrow in the near future.
Factors NEVER used to calculate a credit score include: age, gender, race, occupation, and where you live.
What credit score do I need to finance a car?
Generally speaking, banks like to see a credit score of atleast 600 to approve an auto loan with no down payment. For people interested in leasing, dealerships typically require a score of at least 650.
If your credit score is less than the above numbers, there are still options that may allow you to purchase a vehicle. Factors that determine loan approval and interest rates include:
- Are you using a down payment to purchase? How much money down?
- How well have you managed any past auto loans?
- Based on your history and the vehicle’s history, how much of a risk is it to the lender to grant you this loan?
Will my credit score vary based on the scoring model used?
Sometimes your credit score at the dealership may differ slightly from the most recent score you saw on your credit monitoring service. Why does this happen?
Since FICO uses their own, unique algorithm to determine credit scores, their number may vary slightly from a score determined by another credit scoring company. The difference in scores between credit bureaus is usually minimal, so don’t let it dissuade you from being proactive about building your credit and monitoring your credit report for signs of identity theft.
Want your exact credit score before visiting the dealership, simply visit myfico.com .
Won’t my score take a hit if multiple lenders pull my credit?
Some people choose to apply with several lenders for auto loans to compare their rates, but others fear that multiple credit checks will negatively affect their credit score.
It IS true that too many hard pulls can lower your credit. However, so that shoppers can compare rates, the law states that all credit pulls occuring within 2 weeks will only count as one credit pull so that it doesn’t lower your score. Be sure to only compare loans when you know you are nearly ready to purchase a vehicle.
Starting April 20,2020, Experian, TransUnion and Equifax will offer all U.S. consumers free weekly credit reports through April 20, 2022 at AnnualCreditReport.com to help you project your financial health during the sudden and unprecedented hardship caused by COVID-19.